How The Tax Relief Act of 2010 Will Affect Your Business

The Tax Relief Act or the Unemployment Insurance Reauthorization and Job Creation Act, was passed on 12/17/2010 and includes a few tax changes that are important to businesses and the self-employed in  2011. If you are a business owner you will need to take action immediately on some of the new law’s provisions. Here is what the new law entails and what you will need to do in order to be in compliance.

Employee Payroll Tax Cut

This year employees will get a pay roll deduction or payroll tax cut in 2011. Just for the 2011 tax year, employees will receive a deduction in the amount withheld from their paycheck for social security taxes. The amount will be decreased from 6.2% to 4.2%. On the other hand, Employer’s social security contributions will stay the same at the 6.2% rate.

Companies with employees, need to change employee deductions before 1/31/2011. If they did not adjust withholdings in January, employees need to be reimbursed the amount in future paychecks by 3/31/2011. If a business needs to read more about these withholding changes, IRS Notice 1036 is a great start.

Self-Employed Tax Rate Cut

Self-employed individuals and small businesses will get this 2% tax cut as well.  The self employment tax rate will fall from 15.3 to 13.3%, effective for the first $106,800. Social Security makes up 10.4% with 2.9% for Medicare. Self-employed individuals who make estimated payments to the IRS every quarter, can reduce these by up to $2,136 a year since these taxes only effect the first $106,800 dollars in income.

Bonus For Business Depreciation

Certain investments during 2011 for your business you will be eligible for the bonus depreciation which will be 100%. This is a 50% increase over 2010 and it means that you can take fully as a business expense the cost of certain business investments during 2011. There are limits and you should still check with your tax accountant or preparer to be certain the purchases you make do indeed qualify. It is always a good idea to check in with your tax advisor before you make a purchase so that you are not caught by surprise later on.